An investor purchases a put option for a put premium of $4, with an exercise price of $30. The stock is currently priced at $29, and rises to $32 on the expiration date. What is the profit per unit to the investor on the expiration date?Select one:a. -$4b. $2c. -$2d. $4
Question
An investor purchases a put option for a put premium of 30. The stock is currently priced at 32 on the expiration date. What is the profit per unit to the investor on the expiration date?Select one:a. -2c. -4
Solution 1
The profit for a put option is calculated when the exercise price is higher than the market price. In this case, the exercise price is 32. Since the market price is higher, the option will not be exercised.
The investor paid a premium of $4 for this option. Since the option is not exercised, the investor loses the premium paid.
Therefore, the profit per unit to the investor on the expiration date is -$4.
So, the correct answer is a. -$4.
Solution 2
The profit for a put option is calculated when the stock price is below the exercise price. In this case, the stock price at expiration (30), so the option will not be exercised.
The investor's loss is therefore the initial cost of the put premium, which is $4.
So, the profit per unit to the investor on the expiration date is -$4.
Therefore, the correct answer is a. -$4.
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